Category: ILP

Ah, investment-linked policies – or ILP for short. You hear them everywhere, be it online or offline. What is it, exactly? ILPs are policies with both investment and protection components. They’re flexible in the sense that they cater to consumers who want both at the same time. However, it’s not for everyone and sometimes you end up with one even thought you didn’t intend to. fundMyLife have written two case studies on users who have asked questions on ILP: here and here.

We must emphasize that we here at fundMyLife are not against ILPs. In fact, we believe that an ILP has a place in one’s portfolio. However, the reasons why it ended up in your possession may not be right. In this article, fundMyLife lists the most common reasons why you might have ended up with an ILP.

#1 You were supporting a friend/family/army buddy

This seems to be a very common reason why you’d end up with an ILP. A friend of yours joined the industry, and looked you up for coffee. Sheepishly, the friend divulges that he/she is in financial planning, and is wondering if you have your finances sorted out. Give him/her a chance to help you, your friend says. You realize you have not sorted out your finances anyways.

Before you know it, you’ve signed for an ILP, thinking that your adviser friend is recommending it in your best interests…until it’s too late. You can’t exactly fault them – these friends/family too might have been sold by the benefits of ILPs, and they sincerely believe in it.

Granted, people nowadays are quite savvy and read up plenty. However, peer and family pressure are still pretty strong. It would take a lot to say no. You should never ever use support as a reason to purchase insurance. If you find it hard to say “no” to every family or friend that approaches you to buy a plan, you’ll end up with a mountain of plans and nary an out in sight.

There is still a large percentage of the population that requires education about the finer aspects of personal finance. With blogs like DollarsAndSense and Budget Babe around, it’s much easier to know what you’re getting yourself into when you sign the dotted line.

#2 You didn’t know any better

The idea of investing, to you, is leaving your money in a bank where the interest rate hopefully beats inflation. Alternatively, you use those new-generation of bank accounts which have relatively high interest rates depending on how much you put in. For example, DBS Multiplier Account or OCBC’s FRANK (we wrote something about the former, by the way).

One day you’re walking in a shopping mall, when a well-dressed lady offers you a free gift in exchange for 5 minutes of your time. What was supposed to be a 5-minute affair became 50 minutes, when you were whisked to a cafe nearby. Another well-dressed individual buys you a drink, and proceeds to explain how you need to “start growing your nest egg now before it’s too late”. The individual also shares with you the pain of a family that loses its sole-bread winner, and rhetorically asks if you want the same to happen to your family.

You shake your head. Before you know it, you’ve an ILP in your possession.

#3 You liked the sound of investment + protection

Doesn’t it sound fantastic? It’s such a flexible plan that allows you to invest and get protected at the same time. We live in a time when we want to have our cake and eat it too. Furthermore, it is a hassle to learn to invest. However, do take note that as you age, premiums for your protection component increases.

It means you’ve less money to be directed at your investment component. It is important to constantly readjust the two components so that the premiums for the protection component doesn’t eat into your investments.

#4 You have no time to invest

You have a 9-5 job, and when you’re done with work you’d prefer to spend time with family or friends, or even binge watch that latest show that you’ve been interested in. As such, you’ve truly no time to invest. Or rather, you have no time to learn to invest. Worse still is when your interest is piqued and you see a seminar offered by a celebrity investor, whose course price ranges in the thousands. You attend the seminar, only to find very sensible advice that’s Google-able, and follow-up courses that costs more. Besides requiring time, investing can be a trying exercise on patience and emotions as well.

As such, when the opportunity to purchase an ILP, you were excited. Depending on the fund chosen, the returns can be high (like 8% high). However, the danger about having no time to invest and having an ILP is that you have no time to monitor your returns as well. Before you know it, you’re chalking up losses because despite the constant request by your financial adviser to meet up to review the performance of your fund, you simply have no time to meet him/her.

#5 You have a good financial adviser, and you know exactly what’s up

You have absolutely no financial discipline, and have a hands-off approach to anything that’s finance related. You are also terrible with money. In this case, you probably need either a savings plan or an ILP so that you save/invest regularly.

When you have an excellent financial adviser who can regularly keep you abreast on fund performance, it’s not a bad idea. A good financial adviser will sit down with you and discuss whether you need to reallocate your funds when your current funds are under-performing. The reallocation of funds is a luxury that other plans like endowment cannot do. Endowment plans are at the mercy of the funds that the insurance companies allocate to.

Conclusion

There we have it, folks! These are the reasons why you might have ended up with an ILP. We have four questionable reasons, and one that’s legit. Once again, we must emphasize that we’ve nothing against ILPs, only those advisers who prescribe this plan for everything and everyone. If you ever find yourself needing an awesome financial adviser who won’t suggest ILPs at the drop of a hat, why not head on over to fundMyLife? Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Financial planning can be a scary thing – it’s meant to chart your financial adventure for current and future life stages. This also means you’re more or less committed to this plan for years ahead, barring any changes in your life. Most of the time, the financial plan that a financial adviser provides works out well. However, when it doesn’t, it causes regret and feelings of being lost.

Fortunately, it doesn’t have to be this way. That’s where fundMyLife comes in, to connect consumers with questions to the right financial advisers to answer them. In this case study, fundMyLife follows user Elsie* as she asked financial adviser of fundMyLife Roshan Belani of AIA for advice. In the previous fundMyLife case study, Roshan encountered a user who was in a similar quandary and helped resolve his troubles as well.

With their permission, fundMyLife presents to you a case study that highlights the importance of needs analysis.

To hold or not to hold?

Elsie is a young working woman who bought an ILP four years ago. However, a year after she bought the ILP, she had to go overseas to work. Despite that, she maintained the policy for the next three years. At that point, she felt that she can longer continue with the plan and came onboard fundMyLife to seek advice. Since she bought an AIA ILP, fundMyLife’s algorithm once again connected her to Roshan, where they corresponded for a while. She mentioned that she wanted someone unbiased, and thus came to fundMyLife’s portal.(Editor note: looks like we’re doing good on that front).

Roshan first started with a bit of fact-finding. More specifically, he asked about the kind of ILP she purchased. He explained to us that there are several kinds of ILPs in the market, and ILPs can either have both protection and investment, or purely investment. Elsie did not want to confront her original adviser to discuss her plan, which led her to use fundMyLife. Fortunately, he also found out that she had access to the AIA eCare portal, where she was able to examine her policies (and cancel them if need be).

Learning point

If there was a single learning point, Roshan summarized the case study into this: understand your needs for the near and long term. In the case that you are not sure of what your life will be in the future, it is crucial not to commit to long-term plans that take time to mature.

Roshan also stressed the importance of doing a proper needs analysis, as it can help people avoid encountering what Elsie did. If her financial adviser figured out that there was a possibility that she would go overseas for work, she might not have received the recommendation to purchase an ILP. (Editor note: we hope).

He shared that if you’re unable to foresee what your life path is in the near future, he suggests to get a term plan instead. There are 5-year term plans in the market, better suited for those people in transition between locations or life stages.

He also shared that ILPs are more flexible other plans, with stop-gap measures like premium holidays. However, this sort of measure is at best temporary, and should not be used beyond 6 months as it will eat into the value of the policy. Before engaging such plans, it is important to build up enough money to avoid cash-flow problems when paying premiums.

Conclusion

Needs analysis is important, and it goes beyond just calculating the sum assured for the consumer. Call us biased, but online needs analysis tools do not provide the human insights required anticipate possible future events. In needs analysis, uncertainty is as important a factor as certainty.

If you find yourself in the same situation as Elsie, or you’ve questions on financial planning, head on to our main site and ask our curated pool of financial advisers! Alternatively, you can also browse our individual advisers’ pages – just click on their profiles and you can ask them questions directly from their profile pages.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.